Graduate Microeconomics

Term:
Spring 2011

Subject Code:
GECO

Course Number:
6190

This course examines
how microeconomics explains the behavior of economic agents. We start with the
primitive: An (microeconomic) agent chooses between alternative options to
optimize her objective subject to a constraint. We analyze how this choice is
made under the following conditions: [1] agents have well-defined property
rights, [2] agents are price-takers, [3] agents have all the relevant
information in making their choices, and [4] agents are consistent in making
their choices. Next we analyze how behavior of the agent changes when each of
these conditions are relaxed. Accordingly, the course is divided in the
following parts: Part 1 focuses on modeling households, firms, and markets when
the above mentioned three conditions hold. Here we review the theory of consumer
choice; the theory of the cost-minimizing and profit-maximizing competitive
firm; cost functions and industry equilibrium; demand and supply, particularly
applied to the labor market. In Part 2 of the course, we relax the condition
that ‘agents have well-defined property rights’. Here we explore the problem of
market failure due to externalities and public good. In Part 3 of the course we
relax the condition that ‘agents are price takers’. Here we analyze the models
of imperfect competition and the basic concepts of game theory. In part 4 of the
course, we relax the condition that agents have all the relevant information in
making their choices’. Here we examine the problem of choice under uncertainty;
the problem of incomplete and asymmetric information in market interactions,
including the issues of moral hazard, adverse selection, and signaling. In Part
5 of the course we relax the condition that ‘agents are consistent in making
their choices’, and touch upon the procedural aspects of decision making.